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Jeff Saut: The Telegraph Market


Thinking of shorting the US dollar? Stop.

Editor's Note: The following article was written by Raymond James Chief Investment Strategist, Jeff Saut.

It's the telegraph market; stop.

I have decided to take most of this week off to spend time with my son; stop.

Thinking of calling my firm; stop.

Thinking of emailing us; stop.

Thinking of shorting the US dollar; stop.

Thinking of buying stocks; stop.

Thinking of buying commodities; stop.

Thinking of buying bonds; stop.

Indeed, my firm has been unabashedly bullish on most asset classes since March 2, 2009, although we've turned cautious a few times over the past eight months. To be sure, said asset classes were at least three standard deviations undervalued back in March. Since then, most have normalized to median valuation levels. Accordingly, as we enter the New Year, we're once again turning cautious because the Treasury bond market is breaking down (read: higher interest rates) and the US dollar is rallying. After being dollar-negative since fourth quarter 2001, we turned neutral to constructive on the "buck" in fourth quarter 2007 and recommended shutting down all negative US dollar positions. More recently, we suggested the greenback might be in for a pretty decent rally. If so, the ubiquitous "dollar carry trade" is in jeopardy of unwinding with downside consequences for most asset classes. Therefore, we think it prudent to bank some trading profits and hedge some investment positions as we approach the New Year.

Click to enlarge

Click to enlarge

That said, we still believe the nascent economic recovery will gain traction in 2010, and that earnings comparisons will look good in the first half of 2010. The question then becomes just how much of that has already been discounted by the 68% rally off of the March lows? Also worth consideration is if this is a rally in an ongoing trading range stock market, or the beginning of a new secular bull market. Currently, we don't have a clue, but are happy that we have enjoyed the eight-month rise. We think the trick from here, at least in the short/intermediate-term, is to protect the profits that have been made.

The call for this week: "Breakout or fake-out" is the question du jour on participants' minds this week as the new high recorded by the S&P 500 last week had a bunch of "hair" on it! We'll reserve our opinion until the troops return next week.

Happy New Year, everybody.
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No positions in stocks mentioned.

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